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Banks start tracking BSP policy moves

Posted on December 29, 2014

PHILIPPINE banks have begun to raise their lending rates in response to two consecutive hikes in benchmark rates earlier this year, the head of the Bangko Sentral ng Pilipinas (BSP) said last week.

BSP Governor Amando M. Tetangco, Jr. told reporters that average bank lending rate increased to 5.697% in October from 5.391% in June after the central bank’s policy-setting Monetary Board elevated the reverse repurchase (RRP) -- or overnight borrowing -- rate by a total of 50 basis points (bps) in its meetings last July 31 and Sept. 11.

“[T]he cumulative 50-bp increase in the overnight RRP rate... had a pass-through of 61.2% to bank lending rates as of end-October... The incomplete pass-through of policy rate adjustments to bank lending rates could be attributed in part to ample liquidity in the financial system,” Mr. Tetangco said.

Last July 31, the Monetary Board had raised overnight borrowing and lending rates to 3.75% and 5.75%, respectively, from record lows of 3.5% and 5.5% as a “preemptive” move to anchor upside risks to inflation. The adjustments were the first since October 2012 when they were trimmed also by 25 bps.

At its next meeting on Sept. 11, the board took “stronger policy action” to rein in persistently elevated inflation expectations by raising both special deposit account (SDA) and key policy rates by 25 bps anew.

Before these moves, monetary authorities hiked bank reserve requirement ratios by one percentage point each during their March 28 and May 8 meetings in a bid to curb fast liquidity growth, while the SDA rate was raised across all tenors last June 19.

Monetary policy has now shifted to neutral gear when the board kept all its instruments steady in its Oct. 23 and Dec. 11 meetings in the face of easing inflationary pressures.

The rise in prices of widely used goods decelerated to its slowest pace in a year in November to 3.7%, which settled within the BSP’s 3.5-4.3% estimate for that month and compared to the 4.3% seen in October.

That brought the year-to-date inflation to 4.3%, just above the midpoint of the central bank’s 3-5% target for the entire year.

For this month, Mr. Tetangco had said last Dec. 23 that inflation could have eased further to 2.4-3.2% amid reduced commodity and utility costs.

The low end of the central bank’s estimate for this month would be the slowest recorded since the 2.1% seen in August, while the high end would be the slowest since November 2013’s 3.3%.

The Philippine Statistics Authority is scheduled to report official December inflation data and 2014 full-year average on Jan. 6.

“Going forward, the BSP will continue to monitor evolving price trends to ensure price stability conducive to a balanced and sustainable economic growth,” Mr. Tetangco said.

“The BSP stands ready to implement measures that safeguard its medium-term inflation target.”

The central bank expects inflation to settle within a lower range of 2-4% next year and in 2016. -- Daryll Edisonn D. Saclag